Please refer to important disclosures at the end of this report 1 Y/E March - consolidated (` cr) 2QFY12 2QFY11 % chg (yoy) Angel est. % diff Net sales 36,198 28,782 25.8 34,781 4.1 OPM (%) 12.4 13.9 (146)bp 12.2 23bp Reported PAT 1,877 2,223 (15.5) 1,973 (4.9) Source: Company, Angel Research Forex loss eclipses healthy operating performance: For 2QFY2012, Tata Motors’ (TTMT) consolidated net profit declined by 15.5% yoy (6.1% qoq) on account of MTM loss of `439cr on foreign currency loans. Top-line growth of 25.8% yoy (7.8% qoq) came in slightly better than our expectation, aided by strong 30.3% yoy (8% qoq) growth in JLR’s revenue. Operating margin contracted by 146bp yoy (flat qoq) to 12.4% due to raw-material cost pressures in domestic and JLR operations and unfavorable forex movement. Going ahead, management expects margins in both the businesses to remain under pressure, led by higher raw-material costs. Y/E March - standalone (` cr) 2QFY12 2QFY11 % chg (yoy) Angel est. % diff Net sales 12,954 11,249 15.2 12,846 0.8 OPM (%) 6.7 9.7 (299)bp 7.9 (116)bp Reported PAT 102 433 (76.4) 408 (75.0) Source: Company, Angel Research Standalone operating performance under stress: TTMT posted in-line growth of 15.2% yoy (8.9% qoq) in its top line, driven by 4% yoy (6.9% qoq) growth in volumes and 8.2% yoy (1.8% qoq) growth in net average realization. Operating margin pressures continued during the quarter due to higher raw-material prices, lower operating leverage and higher marketing expenses in the passenger vehicle business. Thus, OPM declined significantly by 299bp yoy (139bp qoq) to 6.7%. Net profit fell by 76.4% yoy (74.6% qoq), led by weak operating performance and MTM loss of `294cr; however, tax credit of `66cr benefitted the bottom line. Outlook and valuation: We broadly retain our estimates for JLR, as we believe strong volume traction witnessed in emerging markets and successful launch of new models will help sustain JLR’s performance. However, we have lowered our standalone earnings estimates to `4.3/`6.8 for FY2012E/13E to factor in the weak domestic volume performance and continued margin pressures. As a result, consolidated earnings estimates have been revised down by 4.3%/4.0% for FY2012/13E. At `181, the stock is trading at 6.1x FY2013E earnings. We recommend Neutral on the stock owing to a limited upside of 3.3% (fair value of `187) from current levels. Key financials (consolidated) Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E Net Sales 92,519 123,133 144,712 162,452 % chg 30.5 33.1 17.5 12.3 Net Profit 1,526 9,065 8,524 9,362 % chg - 494.0 (6.0) 9.8 EBITDA (%) 8.4 13.7 12.0 11.6 EPS (`) 5.3 28.6 26.9 29.5 P/E (x) 33.9 6.3 6.7 6.1 P/BV (x) 6.3 3.0 2.4 1.9 RoE (%) 21.3 65.8 39.4 33.9 RoCE (%) 8.9 24.7 21.0 19.8 EV/Sales (x) 0.9 0.6 0.5 0.5 EV/EBITDA (x) 10.5 4.6 4.6 4.2 Source: Company, Angel Research NEUTRAL CMP `181 Target Price - Investment Period - Stock Info Sector Bloomberg Code Shareholding Pattern (%) Promoters 35.1 MF / Banks / Indian Fls 15.5 FII / NRIs / OCBs 41.2 Indian Public / Others 8.2 Abs. (%) 3m 1yr 3yr Sensex 0.3 (16.9) 79.9 Tata Motors 13.2 (27.6) 560.7 16,883 5,069 TAMO.BO 48,715 1.6 276/138 840,390 10 Market Cap ( ` cr) Beta 52 Week High / Low TTMT@IN Face Value ( `) BSE Sensex Nifty Reuters Code Automobile Avg. Daily Volume Yaresh Kothari 022-3935 7800 Ext: 6844 [email protected]Tata Motors Performance Highlights 2QFY2012 Result Update | Automobile November 15, 2011
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Please refer to important disclosures at the end of this report 1
Y/E March - consolidated (` cr) 2QFY12 2QFY11 % chg (yoy) Angel est. % diff
Net sales 36,198 28,782 25.8 34,781 4.1 OPM (%) 12.4 13.9 (146)bp 12.2 23bp Reported PAT 1,877 2,223 (15.5) 1,973 (4.9) Source: Company, Angel Research
Forex loss eclipses healthy operating performance: For 2QFY2012, Tata Motors’ (TTMT) consolidated net profit declined by 15.5% yoy (6.1% qoq) on account of MTM loss of `439cr on foreign currency loans. Top-line growth of 25.8% yoy (7.8% qoq) came in slightly better than our expectation, aided by strong 30.3% yoy (8% qoq) growth in JLR’s revenue. Operating margin contracted by 146bp yoy (flat qoq) to 12.4% due to raw-material cost pressures in domestic and JLR operations and unfavorable forex movement. Going ahead, management expects margins in both the businesses to remain under pressure, led by higher raw-material costs.
Y/E March - standalone (` cr) 2QFY12 2QFY11 % chg (yoy) Angel est. % diff
Net sales 12,954 11,249 15.2 12,846 0.8 OPM (%) 6.7 9.7 (299)bp 7.9 (116)bp Reported PAT 102 433 (76.4) 408 (75.0) Source: Company, Angel Research
Standalone operating performance under stress: TTMT posted in-line growth of 15.2% yoy (8.9% qoq) in its top line, driven by 4% yoy (6.9% qoq) growth in volumes and 8.2% yoy (1.8% qoq) growth in net average realization. Operating margin pressures continued during the quarter due to higher raw-material prices, lower operating leverage and higher marketing expenses in the passenger vehicle business. Thus, OPM declined significantly by 299bp yoy (139bp qoq) to 6.7%. Net profit fell by 76.4% yoy (74.6% qoq), led by weak operating performance and MTM loss of `294cr; however, tax credit of `66cr benefitted the bottom line.
Outlook and valuation: We broadly retain our estimates for JLR, as we believe strong volume traction witnessed in emerging markets and successful launch of new models will help sustain JLR’s performance. However, we have lowered our standalone earnings estimates to `4.3/`6.8 for FY2012E/13E to factor in the weak domestic volume performance and continued margin pressures. As a result, consolidated earnings estimates have been revised down by 4.3%/4.0% for FY2012/13E. At `181, the stock is trading at 6.1x FY2013E earnings. We recommend Neutral on the stock owing to a limited upside of 3.3% (fair value of `187) from current levels.
Total Sales 206,434 198,405 4.0 193,038 6.9 399,472 380,116 5.1
Source: Company, Angel Research
Standalone operating performance under stress: On a standalone basis, the top line grew by 15.2% yoy (8.9% qoq) to `12,954cr, in-line with our estimate. Growth was driven by an 8.2% yoy increase in net average realization. Volume growth, however, was subdued, registering a modest 4% yoy increase on account of a 21.8% yoy decline in passenger vehicle sales.
Tata Motors | 2QFY2012 Result Update
3November 15, 2011
Operating margin declined substantially by 299bp yoy (139bp qoq) to 6.7% due to raw-material cost pressures, higher marketing spends in the passenger car business and lower operating leverage. As a result, operating profit declined by 20.3% yoy (9.7% qoq) to `873cr.
Reported net profit declined by 76.4% yoy (74.6% qoq) to `102cr, led by weak operating performance and forex loss of `294cr due to revaluation of foreign currency loans. Adjusted for forex loss, net profit fell by 7.6% yoy (flat qoq). During 2QFY2012, tax credit of `66cr benefitted the bottom line.
Forex loss eclipses healthy operating performance: Consolidated top line registered slightly better-than-expected 25.8% yoy growth (strong 7.8% qoq) to `36,198cr, aided by 30.3% yoy (8% qoq) growth in JLR’s revenue and 15.2% yoy (8.9% qoq) growth in standalone revenue. Volume performance at JLR continued to be driven by significant growth in China and Russia, where wholesale volumes grew by 103% and 6% yoy, respectively. Overall JLR volumes recorded robust 23.3% yoy growth to 68,000 units.
Total global volumes grew by 6.6% yoy (down 18.3% qoq) to 280,109 units, led by 20% growth in the global CV business and 23.3% yoy growth in JLR volumes.
Tata Motors | 2QFY2012 Result Update
5November 15, 2011
Exhibit 8: Net sales up 25.8% yoy, aided by 30.3% jump in JLR revenue
Source: Company, Angel Research
On the operating front, margin declined by 146bp yoy (flat qoq) to 12.4%, broadly in-line with our estimate of 12.2%, largely due to raw-material cost pressures in domestic and JLR operations and unfavorable forex movement. Reported net profit stood at `1,877cr, reporting a decline of 15.5% yoy (down 6.1% qoq). Reported net profit was impacted by notional forex loss of `439cr on account of revaluation of foreign currency borrowings due to unfavorable currency movement during the quarter. Adjusted for the notional loss, the bottom line grew by healthy 10.5% yoy (12.6% qoq).
Exhibit 9: EBITDA margin pressures continue
Source: Company, Angel Research
Exhibit 10: MTM losses impact profitability
Source: Company, Angel Research
(8.3)
47.1
84.7 65.0
36.5 21.7
22.8 24.1 25.8
(20)
0
20
40
60
80
100
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2Q
FY1
0
3Q
FY1
0
4Q
FY1
0
1Q
FY1
1
2Q
FY1
1
3Q
FY1
1
4Q
FY1
1
1Q
FY1
2
2Q
FY1
2
(%)(` cr) Net sales (LHS) Net sales growth (RHS)
7.0 11.4 10.9 14.2 13.9 14.2 12.6 12.6 12.4
67.4 67.1 65.2 63.4 64.6 64.2 65.6 65.7 67.2
0
10
20
30
40
50
60
70
80
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
(%) EBITDA margin Raw material cost/sales
0.0
2.5
7.8 7.4 7.7 7.7 7.4
6.0 5.2
0 1 2 3 4 5 6 7 8 9
0
500
1,000
1,500
2,000
2,500
3,000
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
(%)(` cr) Net profit (LHS) Net profit margin (RHS)
Mixed performance at JLR: JLR reported a strong operating performance for 2QFY2012, ahead of our estimates; however, bottom-line growth was flat on a yoy basis on account of MTM losses, high interest cost and increased tax rate.
JLR’s net sales registered robust 30.3% yoy (8% qoq) growth to £2,929mn, driven by a strong 23.3% yoy (9.5% qoq) increase in volumes and a 5.7% yoy increase in net average realization. Total wholesale volumes increased as a result of strong demand from China, where volumes grew substantially by 103% yoy. Volumes in Europe and UK also grew by 47% and 7% yoy, respectively. Average net realization improved due to better product and geography mix.
On the operating front, JLR witnessed a 70bp yoy (flat qoq) contraction to 14.9%, in-line with our estimate, owing to raw-material cost pressures and less favorable operational exchange rates. Operating profit witnessed 24.5% yoy (7% qoq) growth to £437mn. Net profit, however, remained flat on yoy basis at £238mn mainly due to MTM losses on unhedged commodity and foreign exchange derivatives (non cash) of £94mn and higher interest and income tax expense.
Exhibit 12: JLR quarterly performance
Source: Company, Angel Research
Exhibit 13: JLR performance – Region wise
Source: Company, Angel Research
12.1 13.4 10.9 13.9 14.1 11.9 11.9 12.6 13.2
34.7
41.9 46.1 45.2
42.3 46.4
55.1 50.7 52.4
0
10
20
30
40
50
60
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
('000 units) Jaguar Land Rover
0
5
10
15
20
25
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
('000 units) North America UK Europe Russia China Others
Tata Motors | 2QFY2012 Result Update
7November 15, 2011
Exhibit 14: Performance of subsidiaries
Key Subsidiaries (` cr) 2QFY2012 2QFY2011
Net sales EBITDA EBITDAM (%) Net profit Net sales EBITDA EBITDAM (%) Net profit
Tata Motor Finance 471 67 14.3 52 341 53 15.4 45
Tata Technologies 372 54 14.5 48 295 47 15.9 40
Tata Daewoo 902 29 3.2 3 589 38 6.5 7
TML Drivelines 165 98 59.5 55 146 85 58.1 43
Subsidiary total 1,910 249 13.0 158 1,371 222 16.2 134
Source: Company, Angel Research
Outlook and valuation
We broadly retain our estimates for JLR, as we believe strong volume traction witnessed in emerging markets and successful launch of new models will help sustain JLR’s performance. However, we have lowered our standalone earnings estimates to `4.3/`6.8 for FY2012E/13E to factor in the weak domestic volume performance and continued margin pressures. As a result, consolidated earnings estimates have been revised down by 4.3%/4.0% for FY2012/13E.
Exhibit 15: Change in estimates (consolidated) Y/E March Earlier estimates Revised estimates % chg
FY2012E FY2013E FY2012E FY2013E FY2012E FY2013E
Net sales (` cr) 146,181 164,393 144,712 162,453 (1.0) (1.2)
OPM (%) 12.0 11.6 12.0 11.6 - -
EPS (`) 28.1 30.7 26.9 29.5 (4.3) (4.0)
Source: Company, Angel Research
We estimate TTMT to record a 15% CAGR in its revenue over FY2011–13E, driven by a ~10% revenue CAGR at JLR. However, due to margin pressures, earnings are expected to grow moderately by ~2% over FY2011–13E. At `181, the stock is trading at 6.1x and 4.2x FY2013E earnings and EV/EBITDA, respectively. We recommend Neutral on the stock owing to a limited upside from current levels. Our fair value for the stock works out to `187, valuing it on an SOTP basis. We have valued the domestic core business at `68/share, implying 10x FY2013E earnings. Our embedded value of the subsidiaries and investments in TTMT's books (including JLR) works out to `119/share. We have valued JLR at 5x FY2013E earnings, implying a ~30% discount to the average multiple of its peers.
Key downside risk to our estimates: Lower-than-expected growth in JLR due to uncertainty in key markets (Europe, UK and US) will negatively affect our growth estimates on the JLR front. Further, softening of domestic interest rates poses an upside risk to our domestic volume estimates.
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Disclosure of Interest Statement Tata Motors
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